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This excerpt taken from the AN DEF 14A filed Mar 27, 2008. Options
With respect to non-qualified stock options (“NSOs”),
the grantee will recognize no income upon grant of the option,
and, upon exercise, will recognize ordinary income to the extent
of the excess of the fair market value of the shares on the date
of option exercise over the amount paid by the grantee for the
shares. Upon a subsequent disposition of the shares received
under the option, the grantee generally will recognize capital
gain or loss to the extent of the difference between the fair
market value of the shares at the time of exercise and the
amount realized on the disposition.
In general, no taxable income is realized by a grantee upon the
grant of an incentive stock option (“ISO”). If shares
of common stock are issued to a grantee (“option
shares”) pursuant to the exercise of an ISO granted under
the 2008 Plan and the grantee does not dispose of the option
shares within the two-year period after the date of grant or
within one year after the receipt of such option shares by the
grantee (a “disqualifying disposition”), then,
generally (i) the grantee will not realize ordinary income
upon exercise and (ii) upon sale of such option shares, any
amount realized in excess of the exercise price paid for the
option shares will be taxed to such grantee as long term capital
gain (or loss). The amount by which the fair market value of the
common stock on the exercise date of an ISO exceeds the purchase
price generally will constitute an item which increases the
grantee’s “alternative minimum taxable income.”
If option shares acquired upon the exercise of an ISO are
disposed of in a disqualifying disposition, the grantee
generally would include in ordinary income in the year of
disposition an amount equal to the excess of the fair market
value of the option shares at the time of exercise (or, if less,
the amount realized on the disposition of the option shares),
over the exercise price paid for the option shares.
Table of Contents
Subject to certain exceptions, an option generally will not be
treated as an ISO if it is exercised more than three months
following termination of employment. If an ISO is exercised at a
time when it no longer qualifies as an ISO, such option will be
treated as an NSO as discussed above.
In general, the Company will receive an income tax deduction at
the same time and in the same amount as the grantee recognizes
ordinary income.
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